On 16 January 2016 (“Implementation Day”), following the IAEA’s verification of Iran’s compliance with its obligations under the Joint Comprehensive Plan of Action (“JCPOA”), certain nuclear related sanctions imposed on Iran by the international community were eased significantly. This sanctions relief has led to the gates to the Iranian market being opened, but certainly not the floodgates, as yet.

The re-engagement of the international community with Iran, on both a political and an economic level, has created a breadth of opportunities for Iranians and foreign investors to do business together, and has put Iran back on the agenda for global investors. Indeed, according to fDi Markets (an FT service that monitors cross-border greenfield investment), Iran won 22 FDI projects during the first quarter of 2016, which represents the highest rate of investment since fDi Markets started collecting data in 2003. Notwithstanding this paradigm shift in the international community’s outlook on Iran the response of investors, especially European players, has been cautious.

Engagement by global investors in Iran has thus far been predominantly focused on the energy, natural resources and infrastructure sectors, although investors have also been making moves in other sectors such as financial services, manufacturing, consumer goods, automotive and hotels. Whilst European, and in particular German, Italian and French investors have been exploring opportunities in Iran, the most significant developments in trade and investment activity have been from India, Russia, China, Japan and South Korea, with the governments of these countries actively engaging with the Iranian establishment.

The various nuclear related sanctions that had been imposed on Iran had prevented Iran from fully exploiting its significant natural resources, production capabilities and human capital for many years. Accordingly, many sectors have suffered from under investment, both financially and in relation to investment in the development and training of human capital. The Iranian Government has recognised this and has been engaging actively with global investors to attract investment to plug this gap. Viewing the sudden availability of big ticket investment opportunities in Iran against the backdrop of a country with a youthful population of circa 79 million, abundant natural resources and a government that is actively encouraging foreign investment, puts into context what can be expected from Iran once international investors begin to tread less cautiously.

However, alongside the abundant opportunities sits a certain level of risk, and investors’ and financial institutions’ current aversion to the risks associated with doing business in Iran have prevented Iran from benefitting fully from the terms of the JCPOA. Investing in Iran poses similar risks to any other frontier market, such as issues with beaurocracy, compliance and due diligence, but such barriers are generally not sufficient to deter experienced investors, and can usually be overcome with appropriate advice and proper procedures. The most fundamental issue currently facing potential investors in Iran is access to the banking sector, which has been prevented as a result of many European and other banks refusing to conduct any business involving Iran for fear of breaching Unites States sanctions against Iran. Banks are yet to be provided with the level of clarity and comfort they require from the US Office for Foreign Asset Control (OFAC) in relation to the application of United States sanctions to the banks’ operations, and until that time banks will be unlikely to move from their cautious position. Indeed, Iran has repeatedly accused the United States of undermining the JCPOA, and obstructing Iran from reaping the full economic benefits of the deal. Access by investors to financial channels is critical in underpinning the spirit of the JCPOA, and without this, entry by international investors into Iran on the scale predicted prior to Implementation Day will be very unlikely.